Sunday, June 29, 2008

More subsidies/bail-outs

Chinese authorities keep rolling out the subsidies for rural areas. In addition to direct subsidies to farmers there are intergovernmental transfers to local governments in grain-producing areas. Many of these local governments are deeply in debt for various reasons--township and village enterprises that failed in the 1990s, over-staffed bureaucracies, and over-ambitious spending. The cancellation of the agricultural tax in 2006 stripped them of a major revenue source.

A June 27 Peoples Daily article posted on the Internet says that the central Ministry of Finance will allocate 12.7 billion yuan ($1.8 billion) for “comprehensive agricultural development” in order to develop grain production. This is an increase of 10.9% from last year. The funds will be targeted to main grain production areas with planned sown area of 26.55 million mu (1.77 mil. Hectares) of middle- and low-yielding fields. The aim is to raise grain production capacity by 3 million metric tons.

Apparently, this is at least partly a bail-out of local governments. According to the report, 2.6 billion yuan is earmarked for reducing local government debts for land management projects and another 7.1 billion yuan is for complete cancellation of various debts. The purpose is to lighten the burden on rural organizations and farmers, and deal with rural “debt risk” and increase the “enthusiasm” of the “rural masses” to produce.

This year funds for comprehensive development will mostly be allocated to 13 main grain-producing provinces, especially counties with big potential for grain production growth. 300 million yuan will be devoted to medium-scale irrigation projects. It will explore other ways of transforming agriculture with financial aid: enthusiastically supporting “dragon head enterprises”, large-scale crop- or livestock-producing households, farmers’ specialized cooperative organizations, and other modern agricultural management systems. I will give some examples of these types of projects in a later post.